A rollup is when one business acquires one or more other businesses and integrates these acquisitions into its business operations.

Compared to traditional businesses, the Internet is a great place for rollups because it can be relatively easy to acquire and integrate a website into an existing business operation.

In the following article, we will outline a number of reasons why rollups can be a good business growth strategy:

1. Specialized Micro-niches

Because it is relatively easy and cheap to set up a website, it enables the creation of very specialized websites and web-based services. Despite how micro-targeted some website businesses can be, they can be financially viable even with low traffic volumes and revenues. They can be successful financially simply because they cost very little money to build and maintain in the first place. Revenues can still be significantly higher than expenses.

Most website business owners own and operate multiple niche websites. As such, each website delivers a small amount of income that contributes to the overall financial picture of the parent company.

This implies that a rollup expert has tens of thousands of niche opportunities within which to acquire specialized websites.

2. Acquisition Price

Because there are thousands of niches to choose from and many of these websites generate small traffic and revenue numbers, prices can be relatively reasonable.

As most domainers can testify, domain names, which are very illiquid assets with no agreed-upon valuation metrics, often have completely unreasonable price tags attached to them. Domain name owners can be illogical and greedy as they attempt to turn their domain name into a windfall.

However, the value of a website is generally tied to its cash-flow which is easy to determine. If a website produces a lot of cash, then it is expected to have a high value.

Of course, some websites are built on premium domain names which add to the value of the website. But, overall, the acquisition prices for websites in a rollup strategy are reasonable.

3. Ease of Integration

It is generally easier to integrate a website such as a content website or small e-commerce website into a new business operation than, say, in traditional business rollups.

In some cases, it may be as easy as moving the acquired website to a new server owned by the acquirer, switching advertising servers, or transferring administrative and financial reporting systems.

Larger more complex online properties can be more difficult to integrate. But, compared to traditional businesses, it is relatively easy to integrate Internet businesses in a rollup situation.

4. Cross-Marketing

Each rolled-up website can benefit other websites within the portfolio of online properties. If one or more niche websites offers complimentary products or services to visitors, one website can be advertised on another website in order to drive new traffic to that website.

This cross-marketing can increase traffic and revenues for all websites in the network.

5. Buy versus Build

Instead of investing time and money in starting a niche website from scratch and building up its traffic and revenues, it is often more cost-effective to simply buy a website.

In many cases, the founder of the website to be acquired may have launched the website as a passion project. Over time, website founders lose interest in projects or simply want to move on to new projects, and therefore, may be open to selling. For these reasons, owners are often willing to sell at reasonable prices. This makes buying such a website a financially-better option then building a new website from scratch.

6. Due Diligence

The financial and operational due diligence process for web-based businesses can be simple relative to traditional businesses. As such, deals can be done faster.

In some cases, it may be a matter of simply verifying financial reporting documents and accounts, intellectual property such as patents and copyrights, employment agreements, website analytics reports such as traffic accounts, website hosting agreements and arrangements, etc.

Quick due diligence as well as ease of integration can allow for quick and smooth post-deal transitions.

Case Studies

a. Toronto-based VerticalScope.com has built a portfolio of over 600 community-driven websites that attract over 84 million visitors per month by acquiring websites in industries or “verticals” such as automotive, sports, and technology.

The portfolio of websites is run by a single management team. The websites share common infrastructure, which reduces costs. And the large traffic base is offered to corporate advertisers who are looking to reach the target audiences in the network.

b. During the height of the Internet boom of the 90s, Internet.com, an Internet-industry-focused content media company rolled up over 100 websites into a dozen channels or verticals.

At one point, the network of websites had over 3 million subscribers and generated up to 8 million page views per day. At its peak, it launched an IPO, was publicly-traded, and had a market cap of over $730 million. It focused solely on content and e-commerce websites that were related to Internet technology, finance, and marketing.

Internet.com benefited from the fact that many website founders at the time needed cash to continue to develop their website businesses and were therefore willing to stay on within the parent company. Thus, these founders received a salary, cash or shares in a publicly-traded company in exchange for their websites, and they could continue to work diligently and grow the websites and their financial wealth.

For all these reasons, rollup experts can extract a lot of value in applying a rollup strategy to Internet businesses.